Starbucks CIO Brewing Up Much More than Free Wi-Fi

Yesterday, coffee-purveyor Starbucks reversed course on its long-standing in-store Wi-Fi policy by announcing that starting July 1, Wi-Fi would be free in all its U.S. establishments.

Though CEO Howard Schultz broke the news, CIO Stephen Gillett stands at the center of Starbucks' new and expanded Wi-Fi strategy. Gillett's other title is general manager of Digital Ventures, a relatively new group driving Starbucks' evolving in-store tech offerings.

The thrust of the announcement was more than just gratis wireless connectivity. The Starbucks Digital Network (rolling out in fall 2010) includes partnerships with such companies as Yahoo, Apple and the WSJ.com that will give customers access to free online content, local news, music and videos while in store, Gillett wrote on his blog.

All of this is part of the retooled "Starbucks experience" that Gillett discussed when CIO.com spoke with him just six months into his new gig in late 2008. (See Starbucks' Next-Generation CIO: Young, Fast and In Control.) "When you look at our customers and what's happening in our stores," Gillett said at the time, "you see wireless devices, iPhones, converged networks, laptops. You see a generation of customers who are entering our stores and engaging [with us] in new ways."

Like a potent cup of Joe, it's energizing to see a CIO at the center of a critical corporate plan: Leading strategic initiatives rather than playing the role of a back-office IT barista.

Both Schultz and Gillett mentioned several times yesterday that Starbucks envisions its stores as "the third place"--a wired coffeehouse that bridges the home and the office. The free Wi-Fi is just one way to attract more customers who previously might have been turned off by the somewhat complicated AT&T-based registration process and networking policies.

Gillett and his Digital Ventures team are probably hoping that the "one click" log-in that Starbucks is touting with the free Wi-Fi will pacify customers: According to a 2009 survey of 2,700 Wi-Fi users, 50 percent of users were irritated by "complicated login screens," and 35 percent reported "complex payment procedures."

According to Gillett, "You get to a 'click to accept' standard notice, then you are in."

What Took Starbucks So Long?

In response to the Starbucks announcement, some bloggers (and commenters on the related posts) collectively asked: "What took you so long?"

On the popular Techdirt.com site, founder and contrarian-in-chief Mike Masnick wrote:

Way back in 2003, we explained why fee-based WiFi almost certainly did not make sense for coffee shops like Starbucks. A year later, we had a discussion on how the program could be a lot more successful if it went free. But, for years, Starbucks insisted that the paid WiFi was a success. Except, if you watched, it gradually got more and more "like free." And that's because few people were actually using the paid version.

Customers have come to expect free wireless connectivity: According to that 2009 survey of 2,700 Wi-Fi users, nearly 80 percent said that Wi-Fi should be free.

But for many retailers and businesses over the years, the decision to offer free Wi-Fi wasn't so easy--especially if they were generating revenue on their hot spots.

Daryl Schoolar, a senior analyst at market researcher In-Stat,told CIO.com in 2008 that "it is hard for [businesses] to just walk away from that revenue stream even if it will decline." Schoolar predicted that a decline in access revenues will begin in 2010 in United States and in 2012 in the rest of the world.

In August 2008, CIO.com examined the Wi-Fi strategies of four retailers: Borders, McDonald's, Panera Bread and Starbucks. At the time, Panera was the only business of the four that offered free Wi-Fi in its 1,200 restaurants. One analyst in the article noted that for many businesses, free Wi-Fi is already, or will soon become, seen "as just another cost of doing business and an operational expense, rather than as a profit center."

Today, the other three retailers have joined Panera in its customer wireless strategy: Borders begun offering free Wi-Fi (via Verizon) in October 2009; McDonald's (via AT&T) in December 2009; and now Starbucks in July 2010 (also via AT&T).

[ See how Starbucks 'immersed' new CIO Stephen Gillett in its culture: Strong Brew, Free Samples and the Drive-Thru: A Week in the Life of Starbucks' New CIO ]

Starbucks has been under pressure from McDonald's (on several fronts) and other lower-cost competitors, though the company's financial improvements (since Schultz took back the reins in early 2008) have impressed Wall Street and investors.

Now the biggest worry for Gillett and his team might be what effect "Wi-Fi squatters" will have on the customer flow at Starbucks.

When asked about it, Gillett had this to say on his blog: "We thought about this and worked closely with our store operations team before making this offer. Starbucks has always been about the third place and constantly looking at always improving this experience. This is the right thing for our customers and our store employees."

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